E7-8 (Algo) Analyzing Keep-or-Drop Decision [LO 7-2, 7-5] MSI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes "tours" of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have impressive sales. However, sales for the third CD in the collection, The Post Office Polka, have lagged the others. Several other CDs are planned for this collection, but none is ready for production. MSI's information related to the ToddleTown Tours collection follows: Segmented Income Statement for MSI's ToddleTown Tours Product Lines Sales revenue Pet Store Grocery Post Office Getaway $120,000 49,000 6,000 Parade $125,000 53,000 $ 72,000 7,800 $ 71,000 7,600 $ 63,400 $ 57,400 $ (900) $114,450 Polka Total $34,000 $279,000 30,000 $ 4,000 132,000 $147,000 3,200 18,600 $ 800 1,700 $128,400 13,950 Variable costs Contribution margin Less: Direct Fixed costs Segment margin Less: Common fixed costs* Net operating income (loss) $ 64,200 6,250 $ 57,950 *Allocated based on total sales revenue. MSI has determined that elimination of the Post Office Polka (POP) program would not impact sales of the other two items. The remaining fixed overhead currently allocated to the POP product would be redistributed to the remaining two products. Required: 1. Calculate the incremental effect on profit if the POP product is eliminated. 2. Should MSI drop the POP product? 3-a. Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated. 3-b. Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Calculate the incremental effect on profit if the POP product is eliminated. Effect on Profit Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Should MSI drop the POP product? Should MSI drop the POP product? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Calculate the incremental effect on profit if the POP product is eliminated. Suppose that $1,200 of the common fixed costs could be avoided if the POP product line were eliminated. Effect on Profit Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Should MSI drop the POP product? Should MSI drop the POP product